Chapter 8

The Cox Combination

Charter's pending combination with Cox Communications is the largest single change to the asset an investor is being asked to value. It enlarges the cash-generating base and the debt against it at the same time: about $13 billion of revenue and roughly $5 billion of EBITDA arrive alongside about $12.4 billion of assumed net debt [1] [2]. On the company's own pro forma statements — before any synergies — the deal is dilutive to the earnings that reach a Charter share, because Cox Enterprises is paid largely in partnership units rather than stock. The case for it rests on the synergies and the operating playbook, applied to a footprint whose revenue is currently shrinking faster than Charter's own.

Sources: Cox valued at approximately $34.5 billion enterprise value — $21.9 billion equity plus $12.6 billion net debt — at 6.44x 2025 estimated Adjusted EBITDA, per the May 2025 announcement [3] [4]; Cox Enterprises' 25.1% stake and updated $12.4 billion assumed net debt from the FY2025 10-K and Q1 2026 10-Q [5] [6].

What Charter is buying, and how it is paying

Cox Communications is the longest continuous operator in US cable, contributing a residential business of about 12 million passings and 6 million customers [7], plus its commercial fibre and managed-IT and cloud businesses [8]. Added to Charter's roughly 58 million passings, the combined company would reach over 70 million households [9]. Cox contributes its residential cable business to Charter Holdings — the operating partnership Charter itself sits above — and sells its commercial businesses to Charter, with Cox Enterprises paying $1.00 in the mechanics [10].

The structure of the payment matters more than its headline size. Against a preliminary purchase price of about $18.6 billion, only $4.0 billion is cash. The rest is $7.0 billion of Charter Holdings common units and $7.6 billion of convertible preferred units carrying a $6.0 billion liquidation preference and a 6.875% cash dividend [11].

Source: preliminary purchase price allocation, Cox pro forma financial statements, valuing the common units at the $208.75 close on 31 December 2025 [12]; assumed net debt per the Q1 2026 10-Q [13].

Two features of that mix are worth holding onto. First, because most of the consideration is Charter equity, the deal became cheaper as Charter's stock fell: the common units, valued at Charter's $353.64 announcement-date price in May 2025, were marked at the $208.75 December close for the pro forma statements [14] [15]. Second, the $6.0 billion preferred is insulated from that decline and its 6.875% dividend — about $410 million a year — ranks ahead of the common in the cash waterfall, a fixed claim layered on top of the $94 billion debt stack (Business and Balance Sheet).

The combined entity by the numbers

On a full-year FY2024 pro forma basis, the two businesses together generated $68.2 billion of revenue and $15.2 billion of operating income, against Charter's standalone $55.1 billion and $13.1 billion [16]. Adding depreciation and amortisation back, combined EBITDA runs near $27 billion.

Source: unaudited pro forma condensed combined statement of operations, year ended 31 December 2024 [17].

The balance sheet is where the size shows. Combined total debt is about $112 billion, and the pro forma net leverage of roughly 4x is in line with the company's stated approximately 3.9x, calculated on March 2025 balances [18] [19]. The combination does nothing to change the character of the balance sheet that Business and Balance Sheet described: combined franchises and goodwill total roughly $108 billion against controlling-interest book equity of about $14 billion — the value still rests on franchise cash flows, not realisable assets [20].

Why reported earnings per share fall

The pro forma statements show diluted earnings per Charter share falling from $34.97 to $31.18 for FY2024, and from $25.95 to $24.19 for the nine months to September 2025 — a reduction of roughly 11% and 7% [21] [22].

Source: unaudited pro forma condensed combined statements of operations, FY2024 and nine months ended 30 September 2025; standalone figures are Charter historical [23] [24].

The dilution is not the result of issuing many more Charter shares. Weighted-average diluted shares barely move in the pro forma — from 145 million to 145 million for FY2024 [25]. It comes from where the combined earnings land. Because Cox Enterprises is paid in Charter Holdings partnership units, its share of the combined profit is booked as income attributable to noncontrolling interests: that line rises from $770 million to $2,689 million on the FY2024 pro forma, and the residual left for Charter's own shareholders falls from $5,083 million to $4,532 million even as combined net income grows [26]. The same split shows on the balance sheet, where noncontrolling-interest equity rises to $20.4 billion against $14.0 billion of controlling equity [27]. This connects directly to the ownership structure examined in Ownership and Control: the units are exchangeable into Charter stock over time, so today's noncontrolling interest is tomorrow's share count.

Crucially, the pro forma explicitly excludes synergies [28]. Management now guides to at least $800 million of run-rate operating-expense synergies within three years, raised from $500 million at announcement [29] [30]. Taxed at Charter's rate and split with the noncontrolling holders, $800 million of pre-tax savings is worth roughly $2 to $3 of earnings per Charter share — enough to offset the bulk of the reported FY2024 dilution, though not, on its own, to make the deal accretive before any of the revenue and capital synergies management describes but has not quantified.

The asset is shrinking faster than Charter's own

Charter's own base is contracting slowly — revenue fell about 0.5% in 2025 (The Broadband Base). Cox's is contracting faster. On its standalone statements, Cox revenue fell 4.2% year over year in the nine months to September 2025, and 5.0% in the third quarter alone [31]. Cox held operating income flat only by cutting operating costs 6.8% over the same period [32].

Source: Cox Communications condensed consolidated statements of operations, nine months ended 30 September 2025 [33].

The clearest signal on the asset's trajectory comes from Cox itself. Ahead of closing, Cox is recording a non-cash impairment of approximately $5 billion to $6 billion on its franchise intangibles, which it attributes to "updated long-term financial projections that reflect a reduction in estimated future cash flows due to increased competition" and to recent declines in industry market multiples [34]. That is the seller's own accounting write-down of the same broadband franchises Charter is acquiring, made for the same competitive reasons — fixed wireless, fibre overbuild, saturation — documented in Industry Forces. The cost-cutting that holds Cox's margins today is the same lever Charter counts as synergy tomorrow; part of the promised saving is already being spent to stand still.

The operating case, and what would confirm it

Management's argument is not that Cox is growing, but that Charter can make it grow. Cox's mobile and video penetration are low relative to Spectrum's, which management frames as the principal opportunity: introduce Spectrum pricing, packaging and mobile across the Cox footprint, add a field sales force and stores, and lift products per customer — the same migration it ran on Time Warner Cable, Bright House and Bresnan [35]. The Cox network is described as well maintained, with its mid-split upgrade nearly complete, which management says leaves runway to reach DOCSIS 4.0 at lower cost and without haste [36]. The strategic logic is coherent, and it is the same lower-capex, higher-penetration model that underpins the whole thesis (Cash Conversion) — but it is prospective, and it is being applied to a base losing customers today.

The near-term markers a reader can check are concrete:

The checkable items after close: the realised synergy figure against the $800 million guide; the trajectory of the legacy-Cox subscriber and revenue lines, which management will report separately for several quarters [39]; and combined free cash flow per share after the $410 million preferred dividend. The deal enlarges the base the thesis depends on and the debt it must reduce; it does not change the question of whether cash from a shrinking base can do both. It raises the stakes on the answer.